By LEVI PULKKINEN, P-I REPORTER

Published 10:00 pm, Monday, January 26, 2009

With an economy in shambles and state coffers running dry, lawmakers in Olympia appear ready to turn to drink for a little fiscal relief.

In her proposed budget, Gov. Chris Gregoire has requested approval for 10 new liquor stores and a change in law to allow the state-owned stores to sell additional products. That proposal, though, has met with a call from at least one senator and state grocery owners for the state to get out of the booze business.

Hard liquor in Washington is sold either at state-owned stores or, primarily in the state's rural areas, by small retailers operating under contract. All told, the system generated $322 million in fees and taxes paid to the state last year, with total sales rising 6 percent from 2007 to $825 million.

But Sen. Tim Sheldon, D-Potlatch, argues the state could retain that revenue without operating 161 stores staffed by state employees. Sheldon said he's preparing legislation that would see those stores replaced by private sellers while retaining the state monopoly on liquor distribution.

"It's an antiquated system," said Sheldon, whose previous attempts to privatize the stores failed. "Time has marched on. It's really way past time to let the private sector in."

Under Gregoire's proposed budget, the Liquor Control Board would add five state-owned stores and five contract stores, which business owners operate while paying a fee to the state. The liquor board retains price controls over those stores, keeping liquor prices uniform across the state.

While liquor remains heavily regulated when compared with the 32 states without state-owned stores, Washington has eased some restrictions on liquor sales in recent years. In the past three years, 91 stores have been given permission to open on Sundays.

Liquor board spokesman Brian Smith said the organization has requested that it be allowed to sell liquor-related items -- such as bar tools, wine openers and, possibly, ice -- at the state-owned stores to further increase revenue. Additional proposals would allow for increased lottery ticket sales and seasonal stores at shopping malls, all of which the state believes would create $21.2 million in additional sales by mid-2011.

The proposals, particularly increases in nonliquor sales at state-run stores, have drawn fire from grocers as an anti-competitive encroachment on private business. But Smith defended the increases as a needed response to tough economic times.

"We've tried to be open and transparent," Smith said. "This is just one area where we can go in and generate additional revenue."

Jan Gee, president of the Washington Food Industry, said the independent grocers belonging to her organization would be hurt by increases in the number of state-run liquor stores.

While grocers aren't allowed to sell liquor, most view beer and wine sales as a key revenue source, Gee said. But state-mandated price controls make it difficult for grocers to compete with the state-run stores, she said.

"We want them out of competition with us," Gee said. "We want them out of beer and wine, and we don't want them to even be considering an expansion into what they call bar products."

Still, Gee said, her members are split on whether the liquor stores should be privatized. While some support it, others worry that stocking liquor could lead to increased theft or robbery.

Sheldon's proposed elimination of the state-owned stores, which he said he expects to file later this week, likely will face a stiff challenge.

His previous efforts to privatize a portion of the state-owned stores have failed, in part because of pressure from the state employees union representing store workers. Sheldon said he believes today's stark economic situation could spur support for the change, which he asserts would both increase revenue to the state and stimulate small business.

"I think there's a lot of support in the business community, and I think there's very good support from the citizens I talk to," he said.

"It just seems like a governmental function we could easily shed in the current economic situation."

"I have mixed thoughts on the issue of privatizing our state-owned liquor stores," Kohl-Welles said. "I'm very supportive of our state employees, and I think they do a great job. ... On the other hand, I don't believe that privatization is always a bad idea."